2019 Health Insurance Market Report

In addition to consumer complaints, the Insurance Department receives and processesrequests from consumers for an independent review of their denied claims by an IndependentReview Organization (IRO). The number of independent reviews remained relatively stableduring 2012 to 2014, increased during 2015 and 2016, remained stable during 2017, and thenincreased again during 2018. From 2017 to 2018, the number of requests for independentreviews increased by over 36 percent. The growth in the number of independent reviews may bedue to an increased awareness among consumers that an independent review is an option forthem.Over the last ten years, there have been four significant trends in the comprehensivehealth insurance market that the Insurance Department continues to monitor: changes in thenumber of insurers, the number of Utah residents with comprehensive health insurance, the costof comprehensive health insurance, and the financial status of the health insurance market.The number of comprehensive health insurers has declined from 2009 to 2018. Most ofthis change has been due to a decrease in the number of small and very small foreigncomprehensive health insurers. In contrast, while there has been some shifting within the marketas part of the full implementation of the ACA including health insurers leaving the market, thetotal number of large insurers has generally remained stable. Large domestic comprehensivehealth insurers continue to account for more than 85 percent of the market. The number ofmedium insurers has fluctuated during this period. Financial stress and regulatory uncertainty inthe market has made it difficult for some insurers to participate in the comprehensive market andto sustain participation in the Federally Facilitated Marketplace (FFM). From 2014 to 2018, thenumber of comprehensive health insurers participating in the FFM declined from six to two.From 2009 to 2018, the number of Utah residents covered by comprehensive healthinsurance as a relative percentage of Utah’s population has declined by about 7.5 percent.Comprehensive health insurance membership has averaged about 796,000 members over the last10 years. During 2018, comprehensive membership declined by over 4 percent. This changeoccurred primarily in the small and large group markets, while individual membership remainedstable.From 2014 to 2016, membership in the individual market grew significantly. Most of thisgrowth was driven by the federal individual mandate which required most persons to maintainhealth insurance, the availability of coverage through the FFM, where persons whose income isbetween 100 percent and 400 percent of the federal poverty level receive subsidies to makecoverage more affordable, and changes to health insurance regulations, including guaranteedissue and community rating, which have made it easier for Utah residents to get and keepcoverage in the individual market.During 2017, the individual market declined by over 32,000 members. This declineoccurred among individuals with Off-Exchange plans who pay the full cost of any premiumincreases in the individual market, and do not receive any subsidies under the ACA to makecoverage more affordable. Membership in FFM plans, where most members have premiumsubsidies, did not experience the same change. Consumers and health insurers were experiencingsignificant market uncertainty during 2017, such as the question of how rising health care costsvii

and changes to government regulations and the ACA would affect consumers, as well as theending of Cost-Sharing Reduction (CSR) payments and the possibility of the repeal of the ACA.During 2018, membership in the individual market remained stable compared to 2017.Membership in the small group market declined from 2016 to 2018. This decline in smallgroup membership followed premium increases in the small group market during this period. Itis also possible that some small group membership may have shifted to the individual market,and healthy small groups have moved to self-funded health benefit plan arrangements tocircumvent several of the ACA provisions.Large group membership declined from 2014 to 2016, remained stable during 2017, andthen declined during 2018. This change appears to be due to some employer groups moving toself-funding arrangements, although one cannot rule out the possibility of some shifting to theindividual market.Comprehensive health insurance premium per member per month increased significantlyfrom 2017 to 2018. The average premium per member per month increased from 330 during2017 to 379 during 2018, an increase of 14.8 percent. This growth in premiums was driven bychanges in premium per member per month in the individual market, which increased by 45percent. In contrast, group premium per member per month increased by about 4 percent. Overthe last ten years, increases in comprehensive premium per member per month have averaged 6.2percent per year, while increases in losses per member per month have averaged 5.8 percent peryear.The large increase in premiums in the individual market was primarily due to significantrate increases during 2018, but they are also the product of developments over the last five years.From 2014 to 2016, comprehensive health insurers reported high loss ratios, as premiums, evenafter payments from the various reinsurance and risk adjustment programs under the ACA, werenot sufficient to cover the healthcare costs of their insured members. The shift to ACA compliantplans, changes in rating methods, and expanded coverage for higher risk individuals, combinedwith lower than expected payments from the federal risk corridor program, all contributed tothese higher loss ratios. Comprehensive health insurers in both 2014 and 2015 had limited claimhistory to work with to produce reasonable projections, were unable to underwrite for insurancerisk on an individual basis, and 2014 rates were set prior to the creation of “transitional plans”which prevented insurers from making rate adjustments prior to 2014. During 2016,comprehensive health insurers had more claim experience to work with, but there was stillconsiderable market uncertainty which made pricing their products more difficult. During 2017,health insurers had more accurate pricing information and implemented higher rates that moreprecisely represented their actual risk experience and this resulted in improved loss ratios in theindividual market. During 2018, the combination of more accurate pricing information and theelimination of the CSR payment program by the federal government in October 2017 requiredhealth insurers to significantly raise premium rates. The higher premiums collected during 2018improved loss ratios in the individual market, allowing health insurers to cover the cost of healthcare services that they were paying out for their members. In contrast, health care costs and lossratios in the small and large group market remained in line with market trends.viii

Comprehensive health insurers, whether for-profit or non-profit, need enough incomeafter expenses to fund state-mandated reserve requirements, to reinvest in new equipment andnew markets, and to acquire and maintain needed capital. The top insurers in the comprehensivehealth insurance industry have experienced an average financial gain of 0.6 percent in netincome after expenses over the last ten years, with comprehensive health insurers reporting anaverage gain of 4.9 percent in net income after expenses during 2018.The first three years of the full implementation of the ACA were financially difficult forUtah’s core comprehensive health insurers. Comprehensive health insurers had limited claimhistory to work with and were unable to generate enough premium income to cover their losses.Changes to the federal risk corridor program meant comprehensive health insurers did notreceive the additional payments that were expected under the program that would have helpedthem cover their costs.From 2014 through 2016, the combination of not having enough information toadequately price their products and not receiving the additional payments from the federal riskcorridor program as expected produced higher losses for health insurers participating in theindividual market and the FFM. Several comprehensive health insurers withdrew from the FFMdue to concerns that these losses were not sustainable.During 2017, the fourth year of the full implementation of the ACA was a mixture offinancial and regulatory challenges combined with an increase in financial stability. Regulatoryuncertainty such as the possible repeal of the ACA, elimination of the cost-sharing reduction(CSR) payments, and reductions in advertising for the FFM created higher market uncertainty forboth consumers and health insurers than would normally have existed under the ACA as written.During October 2017, the federal government ended the 2018 CSR payment program,which required comprehensive health insurers to raise rates higher than they would have beenhad the CSR payments continued. The combination of higher premium revenue and moreaccurate pricing information for health insurers led to the beginning of a financial recovery.Comprehensive health insurers reported better financial results during 2017 than they did duringthe first three years of the full implementation of the ACA, suggesting that health insurers werereturning to profitability.During 2018, the fifth year of the full implementation of the ACA, comprehensive healthinsurers reported significantly improved financial results. The high losses that were commonfrom 2014 to 2016 were no longer occurring as the large rate increases that were implementedduring 2018 allowed health insurers to cover the cost of the health care services being providedfor their members. The combination of higher premium revenue and more accurate pricinginformation, particularly in the individual market, has led to a financial recovery. Comprehensivehealth insurers reported a level of profitability not seen since prior to the full implementation ofthe ACA.As requested by the Utah Legislature, the Insurance Department has developed a list ofrecommendations for legislative action that have the potential to improve Utah’s health insurancemarket. These recommendations are reported in the Appendix (see page 56).ix

IntroductionFor most people, health insurance is the financing mechanism to manage personal healthcare costs. Health insurance protects against the risk of financial loss that can occur fromunexpected accidents and illnesses. It also provides a way for chronic health problems to betreated and managed in ways that many people could not otherwise afford. Because healthinsurance is so important to the citizens of Utah, it is in the interest of the State to monitor andmaintain a stable health insurance industry.An important purpose of the Insurance Department is to ensure that Utah has an adequateand healthy insurance market. The purpose of this report is to provide an annual evaluation ofUtah’s commercial health insurance market as required by Utah Code § 31A-2-201.2.What is Health Insurance?In general, health insurance transfers the risk of paying for personal health care from anindividual to an entity that pools the risk. The individual shares in the management of his or herpersonal health care risk through the use of deductibles, coinsurance, and the health benefitsprovided by insurance. Individuals obtain their health benefits from one or more of severalsources, such as government sponsored health benefit plans, employer sponsored self-fundedhealth benefit plans, and commercial insurance health benefit plans. The health benefits providedby these plans will range from comprehensive major medical benefits to single disease oraccident only benefits.Government sponsored health benefit plans are government programs that provide healthbenefits. These programs may be funded entirely by government funds or by a combination ofgovernment funds and premiums paid by the covered individuals enrolled in the program. Therisk of financial loss is borne by the government. These programs may provide comprehensivemajor medical health benefits (such as Medicaid and Medicare), limited primary health benefits(such as county health clinics), or limited specialized health benefits (such as Wee Care).Employer sponsored self-funded health benefit plans are plans sponsored by an employerto provide health benefits to the employer’s employees. These plans may be funded entirely bythe employer or by a combination of employer funds and amounts withheld from coveredemployees’ wages. The risk of financial loss is borne by the employer. However, most selffunded plans purchase commercial stop loss insurance coverage for added protection. Theseplans usually provide comprehensive major medical health insurance benefits, and may providebenefits only to the employee or to the employee and the employee’s dependents.Commercial health insurance plans are plans marketed by an insurance company toprovide health insurance benefits to insured persons. These plans are funded by the premiumscollected from insured employers and individuals. The risk of financial loss is borne by theinsurance company. Commercial insurance benefit plans can be issued as fee for service plans,nonprofit health service plans, health maintenance organizations, and limited health plans. Thehealth insurance benefits provided will vary from comprehensive major medical health insuranceto specified limited health insurance benefits such as dental, vision, or specified disease.1

Each of these three sources of health benefits is regulated by a different set of laws andgovernment programs. Government sponsored health benefit plans are regulated by Federalregulatory agencies like the Centers for Medicare and Medicaid Services (CMS). Employersponsored self-funded health benefit plans are regulated for the most part under the FederalERISA statute through the U.S. Department of Labor (DOL), the Centers for Medicare andMedicaid Services (CMS), and the Internal Revenue Service (IRS). Commercial health insuranceis governed by state and federal law and is regulated by state insurance departments. This reportfocuses on the commercial health insurance market regulated by the Insurance Department.Estimate of Health Insurance Coverage in UtahAs mentioned previously, health insurance comes from three sources: government,employers, and commercial insurers. The Insurance Department has attempted to estimate howmuch of the state is insured by each source of health insurance. The estimate is forcomprehensive health insurance coverage only (also known as major medical). A generaloverview of the department’s estimate is shown below in Figure 1 (see Table 1 for details).Figure 1. Estimate of Health Insurance Coverage for 2018Self-Funded(PEHP)4.7%Commercial22.8%Self Funded39.7%Uninsured9.5%Government23.2%Data Sources: Centers for Medicare & Medicaid Services, Deseret Mutual Benefit Administrators, UtahComprehensive Health Insurance Pool, Public Employee Health Program, Utah Department of Health, UtahInsurance Department, and the U.S. Census Bureau.Note: The estimate of the 2018 employer sponsored self-funded membership is based on limited data fromcommercial insurers and employers. It is not a complete count of the self-funded membership in Utah an

their health insurance coverage through health plans sponsored by the government, employers, and commercial health insurers. The commercial health insurance market is the only source of health insurance directly regulated by the Utah Insurance Department, hereafter referred to as the Insurance Department for the purposes of this report.